Build or burn?

‘Accountants know the cost of everything and the value of nothing’. It’s such a well-crafted phrase it seems churlish to object that it’s mistaken. It’s not just wrong, it’s unworthy. Affecting a high moral stance, it’s really a device to divert attention away from discussing how much something is worth. Because without a cost we’re unable to value anything.

A diversionary attack on accountants is a good tactic because it’s generally wise to avoid alienating your opponent directly. Using a third party such as an accountant is much easier. It’s not the king that’s wrong, it’s his advisors.

The phrase itself has been used directly in open argument to me only twice, but it has cropped up a couple more times indirectly when my boss or client has been lobbied against a particular proposal. Lying behind the tactic is fear that something close to the lobbyist’s heart isn’t so highly valued by others. It’s like the union leader, deaf to concerns about affordability, who wants to increase wages regardless. Or, in a more elegant form, the Harvard chief saying, ‘If you think education is expensive, try ignorance’.

We make these cost-value judgements all the time: ‘I’d love [insert anything you want] but I’m not paying THAT much'; or ‘Well, it’s a bit pricey, but it’s still worth it’. It doesn’t matter if it’s a pair of shoes or a multi-million pound business you’re considering.

Faced with an exciting but uncosted proposal your imagination is free to explore all the possibilities unbounded by the constraints of pricing. The moment you are told how much it will cost, you instantly recalculate these benefits in the light of the new information and, only at that point, are you forced to decide whether the benefits are exciting enough to justify the cost.

This type of cost benefit analysis is by far and away the most basic and common decision-support technique used by the finance profession. It’s the main reason we’re in the room. Despite being undemanding intellectually, it’s surprising how often it’s left to us to do the analysis.

It also happens to be one of the aspects of my profession I enjoy most. I’ve frequently joined a working party or project team going round in circles, sometimes for months, for want of carrying out a structured analysis of the costs and benefits. In such circumstances you can quickly bring a measure of clarity to the debate. What follows is normally great fun.